QUARTERLY REPORT ON

HOUSEHOLD DEBT AND CREDIT

February 2011

FEDERAL RESERVE BANK OF NEW YORK

RESEARCH AND STATISTICS GROUP

MICROECONOMIC STUDIES

Household Debt and Credit Developments in 2010Q41 Aggregate consumer debt continued to decline in the fourth quarter, continuing its trend of the previous two years. As of December 31, 2010, total consumer indebtedness was $11.4 trillion, a reduction of $1.08 trillion (8.6%) from its peak level at the close of 2008Q3, and $155 billion (1.3%) below its September 30, 2010 level.2 Household mortgage indebtedness has declined 9.1%, and home equity lines of credit (HELOCs) have fallen 6.5% since their respective peaks in 2008Q3 and 2009Q1. For the first time since 2008Q4, consumer indebtedness excluding mortgage and HELOC balances did not fall, but rose slightly ($7.3 billion or 0.3%) in the quarter. Consumers non-real estate indebtedness now stands at $2.31 trillion, the same level as in 2010Q2, 8.4% below its 2008Q4 peak. About 211 million credit accounts were closed during the four quarters that ended December 31, while 164 million accounts were opened over the same period. However, the number of open credit accounts rose slightly during the fourth quarter, suggesting a recent reversal with more accounts opening than closing in Q4. The number of credit account inquiries within six months an indicator of consumer credit demand rose for the third quarter in a row. Credit cards have been the primary source of the reductions in accounts over the past two years, and during 2010Q4 the number of open credit card accounts finally ended its long decline, rising slightly from 378 to 380 million. Nonetheless, the number of open credit card accounts on December 31 was down 23% from its 2008Q2 peak and balances on those cards were 16% below their 2008Q4 highs. Total household delinquency rates declined for the fourth consecutive quarter in 2010Q4. As of December 31, 10.8% of outstanding debt was in some stage of delinquency, compared to 11.1% on September 30, and 12.0% a year ago. Currently about $1.2 trillion of consumer debt is delinquent and $902 billion is seriously delinquent (at least 90 days late or severely derogatory). Compared to a year ago, delinquent balances are down 13.9%, and serious delinquencies have fallen 12.1%. About 447,000 individuals had a foreclosure notation added to their credit reports between September 30 and December 31, a 2.2% decrease from the 2010Q3 level of new foreclosures. New bankruptcies noted on credit reports fell 4.1% during the quarter, from 522,000 to 500,000. However, new bankruptcies in 2010Q4 were still 2.7% above their levels of 2009Q4. Mortgage originations were strong during 2010Q4, rising 22% to $464 billion. While mortgage originations in 2010Q4 were 54% above their 2008Q4 trough, they remain nearly 40% below their average levels of 20032007. Auto loan originations fell back in the quarter, to $66 billion, but remain more than 30% above their trough level of 2009Q1. Still, auto loan origination balances remain well below their levels of 2003-2007. About 2.4% of current mortgage balances transitioned into delinquency during 2010Q4, reversing the deterioration in this figure that we observed in the third quarter. The rate of transition from early (30-60 days) into serious (90 days or more) delinquency continued its trend of slow improvement, as it fell from 32% to 30%, the lowest rate for this measure since 2007Q3. This improvement was accompanied by a higher cure rate with the transition rate from early delinquency to current increasing in the quarter. While many of the national trends described here are present in most areas of the country, the data for selected states and for the twelve Federal Reserve Districts indicate substantial heterogeneity. For example, data for Arizona, California, Florida and Nevada continue to indicate higher than average delinquency and foreclosure rates, but these rates are falling much faster on average than in the rest of the country. The accompanying charts provide graphic representations of the national data and, for selected series, the underlying geographic variation.
1

This report is based on data from the FRBNY Consumer Credit Panel. Please contact Andrew Haughwout, Wilbert van der Klaauw or Donghoon Lee with questions. 2 For details on the data set and the measures reported here, see the data dictionary that follows the charts.

NATIONAL CHARTS

Total Debt Balance and its Composition

Trillions of Dollars 15
Mortgage HE Revolving Auto Loan Credit Card Student Loan Other

Trillions of Dollars 15

12.4 12.5 12.3 12.0 11.0 10.2 11.3

12.1

11.9 11.6 11.4

(3%) (5%) (6%) (6%) (6%) (74%)

10
8.7 8.2 7.1 7.5 9.1

9.7

10

6.8 5.9 6.0 6.4 5.4

4.6
(9%) (2%) (10%) (8%) (2%) (69%)

4.9

5.2

0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1

Source: FRBNY Consumer Credit Panel

0 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1

3

Number of Accounts by Loan Type

Millions 250 Millions 500

Credit Card (right axis) 200

150 400 100 Mortgage (left axis) Auto Loan (left axis) 50 Student Loan (left axis) HE Revolving (left axis) 0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

300

Total Number of New and Closed Accounts and Inquiries

Millions 400 350 Number of Accounts Closed within 12 Months 300 250 200 150 100 Number of Accounts Opened within 12 Months 50 0 00:Q1 50 0 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
5

Millions 400 350 300 250 200 150 100

Number of Inquiries within 6 Months

Source: FRBNY Consumer Credit Panel

Newly Originated Installment Loan Balances

Billions of Dollars 250 Billions of Dollars 1,200

200 Auto Loan (left axis) 150 Mortgage (right axis)

1,000

800

600 100 400 50

200

0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

0
6

Credit Limit and Balance for Credit Cards and HE Revolving

Trillions of Dollars 4
CC Limit CC Balance HELOC Limit HELOC Balance
23%

Trillions of Dollars 4

3
Utilization Rate

27 %

2
31 % 50 % 56 %

51 %

0
99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 7
Source: FRBNY Consumer Credit Panel

Total Balance by Delinquency Status

Percent 100
Severely Derogatory 120-day late 90-day late 60-day late 30-day late Current

Percent 100

95

95

90

90

85

85

80

80

75 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

75
8

Percent of Balance 90+ Days Delinquent by Loan Type

Percent 20 Percent 20

15 Student Loan Credit Card 10

15

10

5 Auto Loan

HE Revolving

Mortgage 5

0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

New Delinquent Balances by Loan Type

Billions of Dollars 450
MORTAGE HELOC AUTO CC STUDENT LOAN OTHER

Billions of Dollars 450 400 350 300 250 200 150 100 50 0

400 350 300 250 200 150 100 50 0

99:Q2 00:Q2 01:Q2 02:Q2 03:Q2 04:Q2 05:Q2 06:Q2 07:Q2 08:Q2 09:Q2 10:Q2
Source: FRBNY Consumer Credit Panel

10

New Seriously Delinquent Balances by Loan Type

Billions of Dollars 350
MORTAGE HELOC AUTO CC STUDENT LOAN OTHER

Billions of Dollars 350

300

300

250

250

200

200

150

150

100

100

50

50

0
99:Q2 00:Q2 01:Q2 02:Q2 03:Q2 04:Q2 05:Q2 06:Q2 07:Q2 08:Q2 09:Q2 10:Q2
Source: FRBNY Consumer Credit Panel

11

Quarterly Transition Rates for Current Mortgage Percent Percent Accounts

3.5 3.5 3.0 3.0

2.5

To 30-60 days late

2.5

2.0

2.0

1.5

1.5

1.0 To 90+ days late

1.0

0.5

0.5

0.0 99:Q3

0.0 00:Q3 01:Q3 02:Q3 03:Q3 04:Q3 05:Q3 06:Q3 07:Q3 08:Q3 09:Q3 10:Q3
12

Source: FRBNY Consumer Credit Panel

Quarterly Transition Rates for 30-60 Day Late Mortgage Accounts

Percent 60 To Current 50 50 Percent 60

40

40

30

30

20

20

10 To 90+ days late 0 99:Q3

10

0 00:Q3 01:Q3 02:Q3 03:Q3 04:Q3 05:Q3 06:Q3 07:Q3 08:Q3 09:Q3 10:Q3
13

Source: FRBNY Consumer Credit Panel

Number of Consumers with New Foreclosures and Bankruptcies

Thousands 1,200
Foreclosures Bankruptcies

Thousands 1,200

900

900

600

600

300

300

0 0 99:Q3 00:Q3 01:Q3 02:Q3 03:Q3 04:Q3 05:Q3 06:Q3 07:Q3 08:Q3 09:Q3 10:Q3
Source: FRBNY Consumer Credit Panel

14

Third Party Collections

Percent 16 14 12 10 8 6 4 2 0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

Dollars 1,600 1,400 1,200 1,000 800 Average collection amount per person with collection (Right Axis) 600 400 200 0

Percent of consumers with collection (Left Axis)

15

Consumer Credit Score Distribution

900 850 800 750 2nd Quartile 700 Average 650 600 1st Quartile 550 500 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

900 850 800 750 700 650 600 550 500

3rd Quartile

16

CHARTS FOR SELECT STATES

17

Total Debt Balance per Capita* by State

Thousands of Dollars
100 NV

Thousands of Dollars
100

75 CA National Average 50 IL MI AZ FL NJ

75

50 NY

25 OH

TX

PA

25

0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel * Based on the population with a credit report

18

Composition of Debt Balance per Capita* by State (2010 Q4)

Thousands of Dollars 80
Mortgage HE Revolving Auto Loan Credit Card Student Loan

Thousands of Dollars
Other

80

60

60

40

40

20

20

0 AZ CA FL IL MI NJ NV NY OH PA TX US

Source: FRBNY Consumer Credit Panel

* Based on the population with a credit report

19

Delinquency Status of Debt Balance per Capita* by State (2010 Q4)

Thousands of Dollars 100
Current 30-day late 60-day late 90-day late 120-day late Severely Derogatory

Thousands of Dollars 100

80

80

60

60

40

40

20

20

0 AZ CA FL IL MI NJ NV NY OH PA TX US

Source: FRBNY Consumer Credit Panel

* Based on the population with a credit report

20

Percent of Balance 90+ Days Late by State

Percent 21 Percent
National Average FL IL MI NJ NV TX CA OH NY PA AZ

21 FL 18 NV CA AZ 12 NY

18

15

15

12

6 TX 3 PA

0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

21

Percent of Mortgage Debt 90+ Days Late by State

Percent 21
National Average FL IL MI NJ NV TX CA OH NY PA AZ

Percent 21 FL NV 18

18

15

15 CA NY AZ 12

12

PA

0 99:Q1 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
Source: FRBNY Consumer Credit Panel

22

Quarterly Transition Rates into 30+ Days Late by State*

Percent 7 6 5 4 CA 3 2 1 0 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 3 2 1 0
*Four Quarter Moving Average, Rates from Current to 30+ Days Delinquent, All Accounts 23 National Average FL IL MI NJ NV TX CA OH NY PA AZ

Percent 7 NV 6 5 AZ FL 4

Source: FRBNY Consumer Credit Panel

Quarterly Transition Rates into 90+ Days Late by State*

Percent 6
National Average FL IL MI NJ NV TX CA OH NY PA AZ

Percent 6

NV

4 CA FL 3

AZ

0 00:Q1 01:Q1 02:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1
*Four Quarter Moving Average, Rates from not Seriously Delinquent to Seriously Delinquent, All Accounts 24

Source: FRBNY Consumer Credit Panel

Percent of Consumers* with New Foreclosures by State

Percent 1.0
National Average FL IL MI NJ NV TX CA OH NY PA AZ

Percent 1.0 NV 0.8 AZ 0.6 FL

0.8

0.6

0.4

CA MI

0.4

0.2

0.2

NY 0.0 99:Q2 00:Q2 01:Q2 02:Q2 03:Q2 04:Q2 05:Q2 06:Q2 07:Q2 08:Q2 09:Q2 10:Q2
Source: FRBNY Consumer Credit Panel * Based on the population with a credit report

0.0

25

Percent of Consumers* with New Bankruptcies by State

Percent 0.8
National Average FL IL MI NJ NV TX CA OH NY PA AZ

Percent 0.8 OH NV 0.6

0.6

0.4

0.4

0.2

0.2

TX 0.0 99:Q2 00:Q2 01:Q2 02:Q2 03:Q2 04:Q2 05:Q2 06:Q2 07:Q2 08:Q2 09:Q2 10:Q2
Source: FRBNY Consumer Credit Panel * Based on the population with a credit report

0.0

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Data Dictionary
The FRBNY Consumer Credit Panel consists of detailed credit-report data for a unique longitudinal quarterly panel of individuals and households from 1999 to 2010. The panel is a nationally representative 5% random sample of all individuals with a social security number and a credit report (usually aged 19 and over). We also sampled all other individuals living at the same address as the primary sample members, allowing us to track household-level credit and debt for a random sample of US households. The resulting database includes approximately 40 million individuals in each quarter. More details regarding the sample design can be found in Lee and van der Klaauw (2010).1 A comprehensive overview of the specific content of consumer credit reports is provided in Avery, Calem, Canner and Bostic (2003).2 The credit report data in our panel primarily includes information on accounts that have been reported by the creditor within 3 months of the date that the credit records were drawn each quarter. Thus, accounts that are not currently reported on are excluded. Such accounts may be closed accounts with zero balances, dormant or inactive accounts with no balance, or accounts that when last reported had a positive balance. The latter accounts include accounts that were either subsequently sold, transferred, or paid off as well as accounts, particularly derogatory accounts, that are still outstanding but on which the lender has ceased reporting. According to Avery et al (2003), the latter group of noncurrently reporting accounts, with positive balances when last reported, accounted for approximately 8% of all credit accounts in their sample. For the vast majority of these accounts, and particularly for mortgage and installment loans, additional analysis suggested they had been closed (with zero balance) or transferred.3 Our exclusion of the latter accounts is comparable to some stale account rules used by credit reporting companies, which treat noncurrently reporting revolving and nonrevolving accounts with positive balances as closed and with zero balance. All figures shown in the tables and graphs are based on the 5% random sample of individuals. To reduce processing costs, we drew a 2% random subsample of these individuals, meaning that the results presented here are for a 0.1% random sample of individuals with credit reports, or approximately 240,000 individuals as of Q4 2009.4 In computing several of these statistics, account was taken of the joint or individual nature of various loan accounts. For example to minimize biases due to double counting, in computing individual-level total balances, 50% of the balance associated with each joint account was attributed to that individual. Per-capita figures are computed by dividing totals for our sample by the total number of people in our sample, so these figures apply to the population of individuals who have a credit report. In comparing aggregate measures of household debt presented in this report to those included in the Board of Governors Flow Of Funds (FoF) Accounts, there are several important considerations. First, among the different components included in the FoF household debt measure (which also includes debt of nonprofit organizations), our measures are directly comparable to two of its components: home mortgage debt and consumer credit. Total mortgage debt and non-mortgage debt in the third quarter of 2009 were respectively $9.7 and $2.4 trillion, while the comparable amounts in the FoF for the same quarter were $10.3 and $2.5 trillion, respectively.5 Second, a detailed accounting for the remaining differences between the debt measures from both data sources will require a more detailed breakdown and documentation of the computation of the FoF measures.6

Lee, D. and W. van der Klaauw, An introduction to the FRBNY Consumer Credit Panel, [2010]. Avery, R.B., P.S. Calem, G.B. Canner and R.W. Bostic, An Overview of Consumer Data and Credit Reporting, Federal Reserve Bulletin, Feb. 2003, pp 47-73. 3 Avery et al (2003) found that for many nonreported mortgage accounts a new mortgage account appeared around the time the account stopped being reported, suggesting a refinance or that the servicing was sold. Most revolving and open non-revolving accounts with a positive balance require monthly payments if they remain open, suggesting the accounts had been closed. Noncurrently reporting derogatory accounts can remain unchanged and not requiring updating for a long time when the borrower has stopped paying and the creditor may have stopped trying to collect on the account. Avery et al report that some of these accounts appeared to have been paid off. 4 Due to relatively low occurrence rates we used the full 5% sample for the computation of new foreclosure and bankruptcy rates. For all other graphs, we found the 0.1% sample to provide a very close representation of the 5% sample. 5 Flow of Funds Accounts of the United States, Flows and Outstandings, Third Quarter 2009, Board of Governors, Table L.100. 6 Our debt totals exclude debt held by individuals without social security numbers. Additional information suggests that total debt held by such individuals is relatively small and accounts for little of the difference.
2 1

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Loan types. In our analysis we distinguish between the following types of accounts: mortgage accounts, home equity revolving accounts, auto loans, bank card accounts, student loans and other loan accounts. Mortgage accounts include all mortgage installment loans, including first mortgages and home equity installment loans (HEL), both of which are closed-end loans. Home Equity Revolving accounts (aka Home Equity Line of Credit or HELOC), unlike home equity installment loans, are home equity loans with a revolving line of credit where the borrower can choose when and how often to borrow up to an updated credit limit. Auto Loans are loans taken out to purchase a car, including Auto Bank loans provided by banking institutions (banks, credit unions, savings and loan associations), and Auto Finance loans, provided by automobile dealers and automobile financing companies. Bankcard accounts (or credit card accounts) are revolving accounts for banks, bankcard companies, national credit card companies, credit unions and savings & loan associations. Student Loans include loans to finance educational expenses provided by banks, credit unions and other financial institutions as well as federal and state governments.7 The Other category includes Consumer Finance (sales financing, personal loans) and Retail (clothing, grocery, department stores, home furnishings, gas etc) loans. Our analysis excludes authorized user trades, disputed trades, lost/stolen trades, medical trades, child/family support trades, commercial trades and, as discussed above, inactive trades (accounts not reported on within the last 3 months). Total debt balance. Total balance across all accounts, excluding those in bankruptcy. Number of open, new and closed accounts. Total number of open accounts, number of accounts opened within the last 12 months. Number of closed accounts is defined as the difference between the number of open accounts 12 months ago plus the number of accounts opened within the last 12 months, minus the total number of open accounts at the current date. Inquiries. Number of credit-related consumer-initiated inquiries reported to the credit reporting agency in the past 6 months. Only hard pulls are included, which are voluntary inquiries generated when a consumer authorizes lenders to request a copy of their credit report. It excludes inquiries made by creditors about existing accounts (for example to determine whether they want to send the customer pre-approved credit applications or to verify the accuracy of customer-provided information) and inquiries made by consumers themselves. Within each industry of auto finance, mortgage, and utilities (excluding wireless), multiple inquiries in 30-day periods count as one inquiry. Note that inquiries are credit reporting company specific and not all inquiries associated with credit activities are reported to each credit reporting agency. Moreover, the reporting practices for the credit reporting companies may have changed during the period of analysis. High credit and balance for credit cards. Total amount of high credit on all credit cards held by the consumer. High credit is either the credit limit, or highest balance ever reported during history of this loan. As reported by Avery et al (2003) the use of the highest-balance measure for credit limits on accounts in which limits are not reported likely understates the actual credit limits available on those accounts. High credit and balance for HE Revolving. Same as for credit cards, but now applied to HELOCs. Credit utilization rates (for revolving accounts). Computed as proportion of available credit in use (outstanding balance divided by credit limit), and for reasons discussed above are likely to overestimate actual credit utilization. Delinquency status. Varies between current (paid as agreed), 30-day late (between 30 and 59 day late; not more than 2 payments past due), 60-day late (between 60 and 89 days late; not more than 3 payments past due), 90-day late (between 90 and 119 days late; not more than 4 payments past due), 120-day late (at least 120 days past due; 5 or more payments past due) or collections, and severely derogatory (any of the previous states combined with reports of a repossession, charge off to

The student loan delinquency rates shown on page 9 reveal a more volatile pattern and an overall higher delinquency rate prior to 2003, which may reflect a change in reporting behavior where lenders previously may not have reported on loans on which repayment may have been deferred for a period of time (see Avery et al, 2003).

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bad debt or foreclosure). Not all creditors provide updated information on payment status, especially after accounts have been derogatory for a longer period of time. Thus the payment performance profiles obtained from our data may to some extent reflect reporting practices of creditors. Percent of balance 90+ days late. Percent of balance that is either 90-day late, 120-day late or severely derogatory. 90+ days late is synonymous to seriously delinquent. New foreclosures. Number of individuals with foreclosures first appearing on their credit report during the past 3 months. Based on foreclosure information provided by lenders (account level foreclosure information) as well as through public records. Note that since borrowers may have multiple real estate loans, this measure is conceptually different from foreclosure rates often reported in the press. For example, a borrower with a mortgage currently in foreclosure would not be counted here if he receives a foreclosure notice on an additional mortgage account. In the case of joint mortgages, both borrowers reports indicate the presence of a foreclosure notice in the last 3 months, and both are counted here. New bankruptcies. New bankruptcies first reported during the past 3 months. Based on bankruptcy information provided by lenders (account level bankruptcy information) as well as through public records. Collections. Number and amount of 3rd party collections (i.e. collections not being handled by original creditor) on file within the last 12 months. Includes both public record and account level 3rd party collections information. As reported by Avery et al (2003), only a small proportion of collections are related to credit accounts with the majority of collection actions being associated with medical bills and utility bills. Consumer Credit Score. Credit score computed by the credit reporting agency. The score, like the FICO score, ranges from 300-850, with a higher score being viewed as a better risk than someone with a lower score. New (seriously) delinquent balances and transition rates. New (seriously) delinquent balance reported in each loan category. Formortgages, this is based on the balance of each account at the time it enters (serious) delinquency, while for other loan types it is based on the net increase in the aggregate (seriously) delinquent balance for all accounts of that loan type belonging to an individual. Transition rates. The transition rate is the new (seriously) delinquent balance, expressed as a percent of the previous quarters balance that was not (seriously) delinquent. Newly originated installment loan balances. We calculate the balance on newly originated mortgage loans as they first appear on an individuals credit report. For auto loans we compare the total balance and number of accounts on an individual credit report in consecutive quarters. New auto loan originations are then defined as increases in the balance accompanied by increases in the number of accounts reported.

Cover photo credits clockwise from top right: Andrew Love/flickr.com, The Truth About/flickr.com, Casey Serin/flickr.com, Microsoft.com. 2010. Federal Reserve Bank of New York. FICO is a trademark of Fair Isaac Corporation in the United States and/or other countries. All rights reserved.

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